How rigid regulations and strong labour unions are muffling South Korea transport business

South Korea transport business may continue to witness a muffled time due to rigid regulations, strong labor unions, and a risk-averse culture. Until something is done fast and to fix this up, South Korea may continue to suffer stagnation of activities of some strong elements.

Giant automobile manufacturer Hyundai Motors was once caught in the web of strong labor unions in South Korea. Earlier in 2017, ChoiBa-da warned that Hyundai Motors may face a bleak future if it failed to embrace the world of emerging technologies. The pitch car-sharing worked as Hyundai Motors took a daring dive by acquiring 12 per cent shares in Luxi, a venture that cost a whopping $5 million. This was the first such car-sharing venture for Hyundai Motors in the transportation sector.

Unfortunately, the “economic honeymoon” only lasted for 6 months, after which Hyundai sold its stake. Thousands of angry taxi drivers demonstrated that the journey by Hyundai will rob them of their jobs. The drivers, along with some unions, threatened to back-out their patronage of Hyundai cars. 

The short-lived romance between Hyundai and Luxi is a strong example of the enormous power yielded by the labor unions, rigid regulations, and aversion for risk among South Korea conglomerates. These factors may continue to hinder acceptability, development, and growth of a new-age transportation sector in the country. These factors may also adversely affect start-up operations in South Korea.

The reality, as noted by the President Moon Jae-in administration, South Korea’s old growth model embraced by a limited number of exporters like Hyundai and Samsung is no longer feasible in a highly-dynamic competition with the Chinese.

These realistic facts led the government to create a new ministry to look into the affairs of start-ups, especially in the autos, chips and ships sectors. It has boosted this move with funding for new technologies.

Irrespective of the laudable move by the government, start-up players claimed that the government has been too slow to remove some bottle-neck regulations impeding the start-ups. The government’s slow actions may not be unconnected to the fear of any reprisal or backlash that may arise from the powerful labor unions. Again, the government agencies are wary of any move that can adversely shift the economic order of the nation.

Ironically, South Korea resistant to new-age technologies, does not quite add-up with its image as a high tech-savvy nation.

ChoiBa-da of Luxi car-sharing cannot stop wondering how a giant corporation like Hyundai still shows aversion to embracing positive growth of start-ups. Choi said, “After agonizing, Hyundai officials told me that they had to go slow with the service, before eventually pulling out.” Choi says, “How on earth can a startup go slow?”

Defensively, in a statement to Reuters, Hyundai claimed that it sold its stake in Luxi because the venture “did not fit a business model the company pursued”. Youngcho Chi, Hyundai chief innovation officer stated that the car-sharing investment with Luxi was not going to work out with Hyundai.

But Hyundai went ahead to reinvest a whopping sum of $275 million into the ride-hailing Grab of Singapore, an amount that was far higher than the meager $5 million it staked in Luxi. This is an indication of the motor giant’s doubt of a sustainable environment for start-ups in South Korea.

There are many regulations in South Korea transport business muffling the growth of start-ups, such as the prohibition of venture capital funds from investing in real estate, accommodation, financial, and restaurant sectors.

Though there may be a ray of hope as the government is proposing a law to remove these restrictions, how easy and quick will it be is still guesswork. According to a government official at the newly established Ministry of SMEs and Startups, “The bottom line is that we have to move towards innovation, but it takes a considerable amount of time and is a difficult process to mediate existing interests.”

The official added: “Realistically, we can’t simply ignore existing interests. There’s no clear answer.”

As it stands now, it is clear that many Korean ventures prefer to focus on applications that apply locally, which make them hard to be embraced by global companies.

Going by the words of Professor SeoSeung-woo, a professor and entrepreneur, “Government officials are trying to meet every stakeholder’s demands in a way that doesn’t lead to a solution.”

SeoSeung-woo concluded, “I say, don’t think about doing a startup in South Korea. Think outside Korea.”

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